Category Archives: Real Estate

College graduates and other young Americans are increasingly clustering in urban centers like New York City, Chicago and Boston. And now, American companies are starting to follow them. Companies looking to appeal to, and be near, young professionals versed in the world of e-commerce, software analytics, digital engineering, marketing and finance are flocking to cities. But in many cases, they’re leaving their former suburban homes to face significant financial difficulties, according tothe Washington Post.

Earlier this summer, health-insurer Aetna said it would move its executives, plus most of technology-focused employees to New York City from Hartford, Conn., the city where the company was founded, and where it prospered for more than 150 years.GE said last year it would leave its Fairfield, Conn., campus for a new global headquarters in Boston. Marriott International is moving from an emptying Maryland office park into the center of Bethesda.

Meanwhile, Caterpillar is moving many of its executives and non-manufacturing employees to Deerfield, Ill. from Peoria, Ill., the manufacturing hub that CAT has long called home. And McDonald’s is leaving its longtime home in Oak Brook, Ill. for a new corporate campus in Chicago.

“Visitors to the McDonald’s wooded corporate campus enter on a driveway named for the late chief executive Ray Kroc, then turn onto Ronald Lane before reaching Hamburger University, where more than 80,000 people have been trained as fast-food managers.

Surrounded by quiet neighborhoods and easy highway connections, this 86-acre suburban compound adorned with walking paths and duck ponds was for four decades considered the ideal place to attract top executives as the company rose to global dominance.

Now its leafy environs are considered a liability. Locked in a battle with companies of all stripes to woo top tech workers and young professionals, McDonald’s executives announced last year that they were putting the property up for sale and moving to the West Loop of Chicago where “L” trains arrive every few minutes and construction cranes dot the skyline.”

The migration to urban centers, according toWaPo,threatens the prosperity outlying suburbs have long enjoyed, bringing a dose of pain felt by rural communities and exacerbating stark gaps in earnings and wealth that Donald Trump capitalized on in winning the presidency.

Many of these itinerant companies aren’t really moving – or at least not entirely. Some, like Caterpillar, are only moving executives, along with workers involved in technology and marketing work, while other employees remain behind.

“Machinery giant Caterpillar said this year that it was moving its headquarters from Peoria to Deerfield, which is closer to Chicago. It said it would keep about 12,000 manufacturing, engineering and research jobs in its original home town. But top-paying office jobs — the type that Caterpillar’s higher-ups enjoy — are being lost, and the company is canceling plans for a 3,200-person headquarters aimed at revitalizing Peoria’s downtown.”

Big corporate moves can be seriously disruptive for a cohort of smaller enterprises that feed on their proximity to big companies, from restaurants and janitorial operations to other subcontractors who located nearby. Plus, the cancellation of the new headquarters was a serious blow. Not to mention the rollback in public investment.

“It was really hard. I mean, you know that $800 million headquarters translated into hundreds and hundreds of good construction jobs over a number of years,” Peoria Mayor Jim Ardis (R) said.

For the village of Oak Brook, being the home of McDonald’s has always been a point of pride. Over the year’s the town’s brand has become closely intertwined with the company’s. But as McDonald’s came under pressure to update its offerings for the Internet age, it opened an office in San Francisco and a year later moved additional digital operations to downtown Chicago, strategically near tech incubators as well as digital outposts of companies that included Yelp and eBay. That precipitated the much larger move it is now planning to make.

“The village of Oak Brook and McDonald’s sort of grew up together. So, when the news came, it was a jolt from the blue — we were really not expecting it,” said Gopal G. Lalmalani, a cardiologist who also serves as the village president.

Lalmalani is no stranger to the desire of young professionals to live in cities: His adult daughters, a lawyer and an actress, live in Chicago. When McDonald’s arrived in Oak Brook, in 1971, many Americans were migrating in the opposite direction, away from the city. In the years since, the tiny village’s identity became closely linked with the fast-food chain as McDonald’s forged a brand that spread across postwar suburbia one Happy Meal at a time.

“It was fun to be traveling and tell someone you’re from Oak Brook and have them say, ‘Well, I never heard of that,’ and then tell them, ‘Yes, you have. Look at the back of the ketchup package from McDonald’s,’ ” said former village president Karen Bushy. Her son held his wedding reception at the hotel on campus, sometimes called McLodge.

The village showed its gratitude — there is no property tax — and McDonald’s reciprocated with donations such as $100,000 annually for the Fourth of July fireworks display and with an outsize status for a town of fewer than 8,000 people.”

Robert Gibbs, the former White House press secretary who is now a McDonald’s executive vice president, said the company had decided that it needed to be closer not just to workers who build e-commerce tools but also to the customers who use them.

Some in Oak Brook have begun to invent conspiracy theories about why McDonald’s is moving, including one theory that the company is trying to shake off its lifetime employees in Oak Brook in favor of hiring cheaper and younger urban workers.

“The site of the new headquarters, being built in place of the studio where Oprah Winfrey’s show was filmed, is in Fulton Market, a bustling neighborhood filled with new apartments and some of the city’s most highly rated new restaurants.

Bushy and others in Oak Brook wondered aloud if part of the reasoning for the relocation was to effectively get rid of the employees who have built lives around commuting to Oak Brook and may not follow the company downtown. Gibbs said that was not the intention.

‘Our assumption is not that some amount [of our staff] will not come. Some may not. In some ways that’s probably some personal decision. I think we’ve got a workforce that’s actually quite excited with the move,’ he said.”

Despite Chicago’s rapidly rising murder rate and one would think its reputation as an indebted, crime-ridden metropolis would repel companies looking for a new location for their headquarters. But crime and violence rarely penetrate Chicago’s tony neighborhoods like the Loop, where most corporate office space is located.

“Chicago’s arrival as a magnet for corporations belies statistics that would normally give corporate movers pause. High homicide rates and concerns about the police department have eroded Emanuel’s popularity locally, but those issues seem confined to other parts of the city as young professionals crowd into the Loop, Chicago’s lively central business district.

Chicago has been ranked the No. 1 city in the United States for corporate investment for the past four years by Site Selection Magazine, a real estate trade publication.

Emanuel said crime is not something executives scouting new offices routinely express concerns about. Rather, he touts data points such as 140,000 — the number of new graduates local colleges produce every year.

“Corporations tell me the number one concern that t: Zerohey have — workforce,” he said.”

Chicago Mayor Rahm Emanuel said the old model, where executives chose locations near where they wanted to live has been upturned by the growing influence of technology in nearly every industry. Years ago, IT operations were an afterthought. Now, people with such expertise are driving top-level corporate decisions, and many of them prefer to live in cities.

“It used to be the IT division was in a back office somewhere,” Emanuel said. “The IT division and software, computer and data mining, et cetera, is now next to the CEO. Otherwise, that company is gone.”

The housing market is suffering from a supply shortage, not a demand dilemma. As Millennial first-time homebuyer demand continues to increase, the inventory of homes for sale tightens. At the same time, prices are increasing, so why aren’t there more homeowners selling their homes?

In most markets, the seller, or supplier, makes their decision about adding supply to the market independent of the buyer, or source of demand, and their decision to buy. In the housing market, the seller and the buyer are, in many cases, actually the same economic actor. In order to buy a new home, you have to sell the home you already own.

So, in a market with rising prices and strong demand, what’s preventing existing homeowners from putting their homes on the market?

“Existing homeowners are increasingly financially imprisoned in their own home by their historically low mortgage rate. It makes choosing a kitchen renovation seem more appealing than moving.”

The housing market has experienced a long-run decline in mortgage rates from a high of 18 percent for the 30-year, fixed-rate mortgage in 1981 to a low of almost 3 percent in 2012. Today, five years later, mortgage rates remain just a stone’s throw away from that historic low point. This long-run decline in rates encouraged existing homeowners to both move more often and to refinance more often, in many cases refinancing multiple times between each move.

It’s widely expected that mortgage rates will rise further. This is more important than we may even realize because the housing market has not experienced a rising rate environment in almost three decades! No longer is there a financial incentive to refinance for most homeowners, and there’s more to consider when moving. Why move when it will cost more each month to borrow the same amount from the bank? A homeowner can re-extend the mortgage term another 30 years to increase the amount one can borrow at the higher rate, but the mortgage has to be paid off at some point. Hopefully before or soon after retirement. Existing homeowners are increasingly financially imprisoned in their own home by their historically low mortgage rate. It makes choosing a kitchen renovation seem more appealing than moving.”

There is one more possibility caused by the fact that the existing-home owner is both seller and buyer. In today’s market, sellers face a prisoner’s dilemma, a situation in which individuals don’t cooperate with each other, even though it is seemingly in their best interest to do so.

Consider two existing homeowners. They both want to buy a new house and move, but are unable to communicate with each other. If they both choose to sell, they both benefit because they increase the inventory of homes available, and collectively alleviate the supply shortage. However, if one chooses to sell and the other doesn’t, the seller must buy a new home in a market with a shortage of supply, bidding wars and escalating prices. Because of this risk, neither homeowner sells (non-cooperation) and neither get what they wanted in the first place – a move to a new, more desirable home. Imagine this scenario playing out across an entire market. If everyone sells there will be plenty of supply. But, the risk of selling when others don’t convinces everyone not to sell and produces the non-cooperative outcome.

Possible Outcomes

Owner moves, but pays a price escalated by supply shortages for a more desirable home

Owner stays in current house and does not get a more desirable home

Owner moves, finding a more desirable home without paying a price escalated by supply shortages

Rising mortgage rates and the fear of not being able to find something affordable to buy is imprisoning homeowners and causing the inventory shortages that are seen in practically every market across the country. So, what gives in a market short of supply relative to demand? Prices.According to the First American Real House Price Index, the fast pace of house price growth, combined with rising rates, has had a material impact on affordability. In our most recent analysis in April, affordability was down 11 percent compared to a year ago. It was once said that a man’s home is his castle. In today’s market, a man’s home may be his prison, but he is getting wealthier for it.

With about 150 projects starting this year or in the pipeline just in the core of the city, construction is as frenzied as ever.

(The Seattle Times) For the second year in a row, Seattle has been named the crane capital of America — and no other city is even close, as the local construction boom transforming the city shows no signs of slowing.

Seattle had 58 construction cranes towering over the skyline at the start of the month, about 60 percent more than any other U.S. city, according to a new semiannual count from Rider Levett Bucknall, a firm that tracks cranes around the world.

The designation has come to symbolize — for better or worse —the rapid growthand changing nature of the city, as mid-rises and skyscrapers pop up where parking lots and single-story buildings once stood.

And the title of most cranes might be here to stay, at least for a while. The city’sconstruction crazeis continuing at the same pace as last year, while cranes are coming down elsewhere: Crane counts in major cities nationwide have dropped 8 percent over the past six months.

During the last count, Seattle had just six more cranes than the next-highest city, Chicago. Now it holds a 22-crane lead over second-place Los Angeles, with Denver, Chicago and Portland just behind.

Seattle has more than twice as many cranes as San Francisco or Washington, D.C., and three times as many cranes as New York. Seattle has more cranes than New York, Honolulu, Austin, Boston and Phoenix combined.

At the same time, Seattle’s construction cycle doesn’t look like it’s letting up. Just in the greater downtown region, 50 major projects are scheduled to begin construction this year, according to the Downtown Seattle Association. An additional 99 developments are in the pipeline for future years. And that’s on top of what is already thebusiest-period everfor construction in the city’s core.

“We continue to see a lot of construction activity; projects that are finishing up are quickly replaced with new projects starting up,” said Emile Le Roux, who leads Rider Levett Bucknall’s Seattle office. “We are projecting that that’s going to continue for at least another year or two years.”

“It mainly has to do with the tech industry expanding big time here in Seattle,” Le Roux said.

Companies that supply the tower cranes say there’sa shortage of both equipment and manpower, so developers need to book the cranesand their operators several months in advance. It costs up to about $50,000 a month to rent one, and they can rise 600 feet into the air.

Most cranes continue to be clustered in downtown and South Lake Union, but several other neighborhoods have at least one, from Ballard to Interbay and Capitol Hill to Columbia City.

As if things weren’t bad enough for America’s mall owners, what with the having to filling their retail space withhigh schools, grocers and churches, it seems that retailers have grown so uncertain about the future of these 1980s relics that they’re only willing to sign 1-2 year leases these days.

AsBloomberg points out this morning, leases renewals used to be 5-10 years in length but are increasingly only being signed with 1-2 year terms. Meanwhile, thousands of stores are closing each year and it’s only expected to get worse over time.

After more than a dozen bankruptcies this year contributed to thousands of store closures, visibility for the industry is so poor that retailers are pushing for lease renewals as short as a year or two — down from five to 10 years.

“You’re certainly seeing the renewals geared toward the shorter term, rather than the five-year renewal,” said Andrew Graiser, head of A&G Realty Partners. Retailers are now struggling to figure out how many stores they actually need, he added, and landlords are looking at them “with a much closer eye than they did before.”

Somewhere between 9,000 and 10,000 stores will close in the U.S. this year, said Garrick Brown, vice president of Americas retail research for commercial broker Cushman & Wakefield — more than twice as many as the 4,000 last year. He sees this figure rising to about 13,000 next year.

“Everyone’s trying to figure out where the bottom of the market’s going to be,” Brown said. He estimates it could occur in 2018 or early 2019.

Not surprisingly, retailers are finding it difficult to sign long-term leases in an environment where 26% of malls around the country are expected to close their doors over the next five years.

Further complicating the lease-length dilemma is the question of which shopping centers will still be around in a decade. Cushman & Wakefield’s Brown sees about 300 of 1,150 U.S. malls shutting down in the next five years.

Perry Mandarino, senior managing director and head of corporate finance at B. Riley & Co., predicts that retail bankruptcies and restructurings will further accelerate in 2018. Some of this will be the result of a long-overdue shakeout of the surfeit of U.S. store space, but the downturn is also compounded by shifts to online shopping and consumers spending on experiences rather than physical stuff, he said.

Meanwhile, landlords are trying to fight back, though it’s a fairly difficult task both arms tied behind their backs.

Landlords “have their backs against the wall, so they’ve been fighting back, hard,” he said. “What you have is a game of chicken up to the end.”

“With all this excess inventory, landlords are trying to do whatever they can to keep malls occupied,” Agran said. “The more empty spaces, the more difficult it is to attract new tenants.”

Frankly, it’s shocking that Abercrombie wouldn’t jump at the opportunity to scoop up some prime square footage in this mall…it already has the Chili’s awning and everything.

Summary

Banks have sharply pulled back on lending and have been tightening lending standards.

Banks are saying they see less demand so why are people saying demand is strong?

Overview

We live in a credit driven economy. Most know this to be the case. Individuals and corporations borrow money from banks for homes, cars, real estate projects and other investments. The availability for credit is perhaps the most important driver of economic growth, aside from income growth. Without credit, the economy grinds to a halt. It is not a surprise that banks have a desire to lend money when times are good and pull back lending when times are tough. This seems logical but when times are tough for consumers is exactly when they need credit to push forward with new marginal consumption.

Much of my research lately has been outlining the peak in the economic cycle that occurred in 2015. Many people misconstrue this for an imminent recession call or a stock market crash prediction when that simply is not the case.

The economy follows a sine curve. It peaks and troughs and for the most part follows a nice cyclical wave. Recessions occur when growth is negative but the “peak” of the cycle occurs well before the recession. They are not simultaneous events.

The sine wave below may help illustrate my point:

The most important point to understand is the elapsed time between the peak and the recession, where we live today.

Many confuse the “peak” of the cycle with the end of the cycle when in fact, across all economic cycles, the peak occurred about ~2 years prior to the recession. After the peak of the cycle is in, growth does continue, albeit at a slower pace. It is a dangerous assumption to make when critics of this analysis say we are still growing when we are growing at an ever slowing pace. When growth goes from 3% to -2%, let’s say, it has to hit 2%, 1%, 0%, etc. in the middle. That deceleration is what occurs between the peak and the recession.

There is a large population of investors and analysts that simply look at the nominal growth rate and say 2% is still okay, without regarding that the growth has gone from 3% to 2.5% to 2% and now lower.

The time to prepare for the end of the economic cycle is after the peak in the cycle has been established. The good news, like I said before, is you typically have two years after the peak to prepare yourself.

Preparing yourself does not mean buying canned foods and building a bunker as many raging bulls like to straw-man even the smallest critics into a “doom and gloom” scenario.

The good news is that you can still ride the gains of the lasting bull market with an asset allocation that is slightly more defensive. You may slightly under perform the last year or two of the bull market but if offered a scenario in which you gained 3% instead of 10% in the last year of the bull market and then gained another 3% instead of -10% in the following year, I would hope you’d pick the pair of 3% because that in fact leaves you with more money.

In a raging bull market some cannot stomach “leaving” that 7% (these are clearly arbitrary numbers used to make a point) on the table.

For the rest of the piece, I will use the banking loan growth and the banking surveys to prove the peak of the credit cycle is in and we are in a period of decelerating growth, falling down the back of the sine wave as I pointed out above. The recession is in sight despite how hard many want to avoid it.

I will also at the end run through the portfolio I began to recommend on May 1st that will prepare you for slowing growth but also allows you to share in the upside should the market continue higher.

So far, that portfolio is actually outperforming the S&P 500 with a negative correlation and lower volatility. I will go through this at the end.

The Peak in Credit is Behind Us, The Fat Lady is Singing

For the analysis of the credit peak, I will use two main economic reports. First is the “Assets and Liabilities of Commercial Banks” published by the Board of Governors of the Federal Reserve and the second is the Senior Loan Officer Survey also published by the Board of Governors of the Federal Reserve.

Assets and Liabilities

The “Assets and Liabilities” report is a weekly aggregate balance sheet for all commercial banks in the United States. The release also breaks down several banking groups. The most interesting part of the report is the breakdown of loan group in which you can see auto loans, real estate loans, consumer loans and much more.

Most importantly, this is hard data and not subject to sentiment, feeling or bias. Banks are either growing their loan books at a faster pace or a slower pace. This is perhaps one of the biggest economic signals. Banks would experience lower demand or credit issues and tighten up their loan books before that lack of credit leaks into the economy in the form of lower growth.

The following data from the Assets and Liabilities report will indicate just how much banks have reeled in their lending and prove the peak in credit growth is long gone.

All Commercial & Industrial Loans:

This is exactly as it sounds; all loans banks make, the broadest measure of credit availability. This is an aggregation of all the loans made by all the commercial banks in the survey. Currently this report aggregates 875 domestically chartered banks and foreign related institutions.

Rarely do I look at any data series in nominal terms, not year over year that is, but this chart does show the peaks in total credit fairly clearly. Credit rises week after week without ever slowing down. The only times when there was a pause, drop, or large deceleration in credit creation was during times of economic distress. Banks are fairly smart and they won’t lend if risk is too high, uncertainty is too great or credit quality is too low.

Many will speculate on the reason for a drop off in bank lending but the reason truthfully isn’t that important.

The growth rate in total credit shows you exactly when the fat lady began to sing on loan growth.

The question is not whether credit growth has peaked, that is clear. Credit growth is also never negative without a recession and we are getting dangerously close to that. If the prevailing sentiment is that demand is high, why are banks pulling back lending at a record pace?

The rate of the drop in credit growth has been accelerating. Some may point to the current administration and the uncertainty surrounding policy changes but I would push back and say that growth peaked and was falling since 2015, far before this political scenario.

It is very critical to look at the above loan growth chart in the context of the sine curve at the beginning of this piece. If negative growth is a sign of recession, I think you’d be crazy not to shift defensive. Don’t sell all stocks, just know where you are in the cycle.

This is the broadest measure of all credit, so what is the specific sector that is causing the aggregate loan growth to plummet.

The context of the cycle is clear in the above chart so for all the specific loan sectors going forward I will focus on this cycle only from 2009 through today. The report is also on a weekly basis. If a data series does not start from 2009 or prior, that is because that is all the data available as some series began in 2014.

Real Estate Loans:

Credit growth in the real estate sector peaked later than overall credit but has certainly registered its highest growth of the cycle.

Real estate clearly does well in times of credit expansion and less so during times of credit growth contraction.

Mapping home price growth from the Case-Shiller Home Price Index over real estate loan growth should highlight the importance of credit growth for real estate and the dangers of disregarding its rollover.

Not surprisingly, there is a high correlation between real estate loan growth and home price growth. Just briefly skipping ahead (will return to this) the Senior Loan officer survey also shows that banks are claiming lower demand for real estate loans; mortgages and more specifically, commercial real estate.

(Federal Reserve)

(Federal Reserve)

It is hard to overstate the importance of this, specifically the commercial real estate demand. People claim “demand is booming” or something of the sort but banks, the ones who actually make the loans, are claiming demand for real estate loans is the weakest since just before the last housing crisis. Again, not making that call but this drop in loan growth and demand is telling a far different story than those who claim demand is through the roof.

Consumer Loans: Credit Cards:

Consumer loan growth in the credit card space are following trend with the rest of loan growth, still growing but decelerating and months past peak.

With credit card growth rolling over, in order to keep up with the same consumption, consumers need to spend their income. The problem is income growth is falling as well.

Total real aggregate income is near its lowest level of the cycle.

With loan growth slowing and income growth slowing, where is the marginal consumption going to come from? With this data in hand, it should not some as a surprise that GDP growth has gone from 2% to 1% and sub 1% as of the latest Q1 reading.

What are banks saying about consumer demand?

(Federal Reserve)

Across all categories banks are reporting weaker demand. Again, where is the strong demand that everyone keeps talking about? It is not showing up in loan growth data or in banking demand surveys.

I will reiterate this point continually; loans are still growing and income is still growing but at a slower pace and past peak pace. This should put into context where we are in the broader economic cycle.

Auto Loans:

Unfortunately, the auto loan data started in 2015 so there is no previous cycle to use for comparison. Nevertheless, the peak in auto loan growth occurred in the summer of 2016, and like other credit, has been declining to its lowest level of the cycle.

Not much more needs to be discussed on auto loans that is not widely covered in the media. Subprime auto loans and sky-high inventories are a massive issue. In fact, auto inventories are the highest they’ve been since the Great Recession.

(BEA, FRED)

The goal here is not to predict a subprime auto loan issue but rather to point out yet another area of growth that is slowing to its lowest level of the cycle.

Commercial Real Estate:

While the peak in commercial real estate loan growth is in as well, the peak occurred later than the aggregate index. CRE loan growth topped out in 2016 while the aggregate loan growth peaked closer to the beginning of 2015.

As I pointed out above, banks are sending a serious warning sign on the commercial real estate market.

The senior loan survey shows a triple threat of warning signs from the banks. They are claiming falling demand, tighter lending standards and uncertainty about future prices.

Weakening demand:

Tightening Standards:

The following is an excerpt from the senior loan survey on commercial real estate:

A warning from the banks.

The fat lady has been singing on credit growth…So what do you do?

How To Prepare

On May 1st, I put out a recommended portfolio that the average investor can follow. The portfolio is a take on Ray Dalio’s All Weather portfolio.

I strongly believe peak growth is behind us, and when that happens, growth decelerates until the eventual recession. I am not in the game of predicting the exact date of the next recession.

I do not want to be long the market or short the market per se.

The best way to phrase my positioning is I want to be long growth slowing.

The portfolio I recommended (and will continue to update and change asset allocation on a weekly basis. Follow my SA page for continued updates) was the following:

(All analysis on this portfolio is from the time of recommendation, May 1st, to the time of this writing on May 18).

I use SCHD in my analysis as I mentioned I would choose this over SPY for additional safety but either one is fine.

Since the recommendation, the portfolio is up an excess of 0.96% above the S&P 500 with under 2/3 the volatility and a negative correlation.

The weighted beta of this portfolio, given the asset allocations above, is 0.02. This portfolio is nearly exactly market neutral and has a yield of around 2.5%, above the S&P 500. This portfolio protects you in all scenarios. If the stock market continues to rise, your portfolio should rise just slightly and you should continue to clip a nice coupon.

Should the market fall, the bond allocation will provide safety and stability to the portfolio. A portfolio like this allows you to weather the bumpy ride, stay invested, and continue to clip a dividend yield.

Of course, this is not an exact science and past performance is no indication of future results. Also, those who chose to follow a defensive, yet still net long, portfolio such as the one above can replace SPY or SCHD with their favorite basket of stocks. The reason I chose the ETF was for simplicity.

The percentages above are what I feel are best for the current environment we are in. It will allow me to share partially in the upside while mitigating my downside. At the end of the day, the most important thing is to protect capital.

This portfolio is the best way in my opinion to not be long, not be short, but be neutral and long growth slowing.

I will continue to update this portfolio and rotate asset allocation as the economic data changes and my positioning becomes more bullish or bearish.

Disclosure:I/we have no positions in any stocks mentioned, but may initiate a long position in TLT, GLD, IEF over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Sen. Dianne Feinstein’s husband, Richard Blum, could bag $1 billion in commissions for his company from a government plan to sell 56 US Postal Service buildings.

As theNew York Postnotes, “Blum’s company, CBRE, was selected in March 2011 as the sole real estate agent on sales expected to fetch $19 billion. Most voters didn’t notice that Blum is a member of CBRE’s board and served as chairman from 2001 to 2014.”

Feinstein’s office denies that she had anything to do with the USPS decision.

This is not the first time Feinstein and her husband have come under fire for engaging incrony capitalism.

Don’t Call It A Comeback: How Rising Home Values May Be Stifling Inventory

U.S. home inventory tumbled to a new low in the first quarter of 2017, falling for eight consecutive quarters. Homebuyers have now been stifled by low inventory for the last two years despite prices rising to pre-recession highs in many markets.

In this edition of Trulia’s Inventory and Price Watch, we examine how home value recovery may be limiting supply in markets that have recovered most. We find that homebuyers in markets with the biggest gains are facing the tightest supply.

The Trulia Inventory and Price Watch is an analysis of the supply and affordability of starter homes, trade-up homes, and premium homes currently on the market. Segmentation is important because home seekers need information not just about total inventory, but also about inventory in the price range they are interested in buying. For example, changes in total inventory or median affordability don’t provide first-time buyers useful information about what’s happening with the types of homes they’re likely to buy, which are predominantly starter homes.

Looking at the housing stock nationally and in the 100 largest U.S. metros from Q1 2012 to Q1 2017, we found:

Nationally, the number of starter and trade-up homes continues drop, falling 8.7% and 7.9% respectively, during the past year, while inventory of premium homes has fallen by just 1.7%;

The persistent and disproportional drop in starter and trade-up home inventory is pushing affordability further out of reach of homebuyers. Starter and trade-up homebuyers need to spend 2.9% and 1.6% more of their income than this time last year, whereas premium homebuyers only need to shell out 0.9% more of their income;

A strong recovery may be partly to blame for the large drop in inventory some markets have experienced over the past five years. On average, the more valuable a market’s housing is compared to pre-recession levels, the larger drop in inventory it is has seen.

2017 Ushers in a Dramatic Shortage of Homes

Nationally, housing inventory dropped to its lowest level on record in 2017 Q1. The number of homes on the market dropped for the eighth consecutive quarter, falling 5.1% over the past year. In addition:

The number of starter homes on the market dropped by 8.7%, while the share of starter homes dropped from 26.1% to 25.9%. Starter homebuyers today will need to shell out 2.9% more of their income towards a home purchase than last year;

The number of trade-up homes on the market decreased by 7.9%, while the share of trade-up homes dropped from 23.9% to 23%. Trade-up homebuyers today will need to pay 1.6% more of their income for a home than last year;

The number of premium homes on the market decreased by 1.7%, while the share of premium homes increased from 50% to 51%. Premium homebuyers today will need to spend 0.6% more of their income for a home than last year.

How and Where a Strong Housing Market May Be Hurting Inventory

In the first edition of ourreport, we provided a few reasons why inventory is low: (1) investors bought up much of the foreclosure home inventory during the financial crisis and turned them into rental units, (2) price spread – that is, when prices of homes in different segments of the housing market diverge from each other – makes it difficult for existing homeowners to tradeup to the next the segment, and (3) slow home value recovery was making it difficult for some homeowners to break even on their homes. While there isevidencethat investors indeed converted owner-occupied homes into rentals as well as evidence from our first report that increasing price spread is correlated with decreases in inventory, little work has examined how home value recovery affects inventory. This is perhaps due to the tricky conceptual relationship between home values and inventory: too little recovery might make it difficult for homeowners to sell their home but cheap to buy one, while too much recovery might make it easy for them to sell but difficult to buy.

In fact, we find a negative correlation between how much a housing market has recovered and how much inventory has changed over the past five years. Using the current value of the housing market relative to the peak value as our measure of recovery, we find markets with greater home value recovery have experienced larger decreases in inventory over the past five years. The linear correlation was moderate (-0.36) and statistically significant. We also found that markets with the strongest recovery, on average, have experienced the largest decreases in inventory.

For example, the five-year average change in inventory of housing markets currently valued below their pre-recession peak (< 95% of peak value) isn’t that different from ones that have recovered to 95% – 105% of their peak. (-27.6% vs. -30.1%). However, the average change in inventory in well-recovered markets (> 105%) is 0more drastic at -45.4%.

The disparity also persists when looking at changes in inventory within each segment, although the difference is largest for starter homes. On average, markets with less than 95% recovery or 95% to 105% recovery had a 34.2% and 31.7% decrease in starter inventory, while markets with more than 105% home value recovery had a whopping 58.2% drop. These findings suggest that a moderate home value recovery doesn’t affect inventory much, but a strong recovery does and impacts inventory of starter homes the most.